Committee Reports > List of Committees > Dáil > 1996 > Committee of Public Accounts > Report No. 01 - Value for money examinations

MIONTUAIRISC NA FIANAISE

MINUTES OF EVIDENCE

AN COISTE UM CHUNTAIS PHOIBLÍ

COMMITTEE OF PUBLIC ACCOUNTS

Déardaoin 12 Deireadh Fómhair 1995

Thursday 12 October 1995

The Committee met at 11 a.m.

MEMBERS PRESENT

DEPUTY DENIS FOLEY IN THE CHAIR

Mr. John Purcell (Comptroller and Auditor General) called and examined.

Mr. Robert Bradshaw, Mr. Tony Jordan and Mr. John O’Connell (Department of Finance representatives) in attendance.

REPORT ON VALUE FOR MONEY EXAMINATION - DEPT. OF HEALTH ENERGY MANAGEMENT IN THE HEALTH SERVICE

Mr. Jerry O’Dwyer, Secretary, Dept. of Health, called and examined.

Chairman: I welcome the representatives of the Department of Health. Can you introduce yourselves so that we can get under way.

Mr. J. O’Dwyer: I am joined by Mr. Tom Gallagher who is head of engineering in the Department, as well as Mr. Eamon Corcoran and Mr. Michael Perkins both of whom are in the Department’s value for money unit.

Chairman: Thank you. I call on the Comptroller and Auditor General to address the Committee.

Mr. Purcell: Something over £20 million is spent each year on fuels and other energy sources in Health Boards and publicly funded hospitals. It has long been recognised that significant savings can be achieved in energy costs by the implementation of a proactive programme of energy management. The Accounting Officer of the Department of Transport, Energy and Communications has informed this Committee on a number of occasions that savings of up to 20 per cent could be expected from good energy management in the country generally and, by extension, in the public sector also.

It was against this background that my Office undertook an examination of energy management in the health service. This was a major task involving a survey of 166 Health Board hospitals and homes, and 25 voluntary hospitals; the development of performance indicators for energy consumption using the survey data; and energy audits in 20 hospitals and homes by a firm of consulting engineers commissioned by my Office.

The examination concluded that savings were readily achievable principally in the areas of fuel substitution where the transfer to heavier grade oils can yield savings sufficient to recoup the initial capital outlay inside 12 months and in the area of centralised purchasing. For example, it was estimated that central procurement arrangements for fuel oils would generate annual savings of £114,000 for the North Western Health Board.

There is also scope for low cost initiatives like optimisation of boiler efficiency and improvement of lighting efficiency which could save £500,000 a year. A once off capital outlay of approximately £6 million could realise further annual savings of £2.2 million for at least ten years.

This is not to suggest that Health Boards have been inactive in the matter of energy management. There is a recognition that savings can be made. We noted several examples of initiatives which have been successfully implemented. Some Boards were more active than others in specific areas and this is illustrated by the range of prices paid for different types of fuel, and the regional variations in energy consumption. The fact that the potential for savings was much less in the voluntary hospitals is noteworthy. In general, considerable progress had been made already by the voluntary hospitals in exploiting cost saving opportunities.

In summary it can be said that much has been done to effect economies in energy costs in the health sector but that much still remains to be done.

Chairman: Mr. O’Dwyer, can you outline the steps your Department has taken, and proposals you are considering, to ensure that there is a better and more economical approach to the use of energy in hospitals? What role do you see your Department playing in the future to ensure that the potential for savings is maximised?

Mr. O’Dwyer: Before I reply directly to your questions, I would like to make a few introductory comments. We very much welcome this report which addresses an area that the Health Boards and hospitals have long worked in to achieve better value for money. The results show that.

The report is very useful because it provides a good comparative picture. It identifies some further opportunities for economies and gives us useful suggestions on organisation. It has generally been well received by the Health Boards subject, as you might expect, to some reservations on the analysis. You are probably aware that when the report was published the Minister welcomed it.

There has been and will continue to be a commitment both on the part of the Department, the Health Boards and the hospitals to value for money generally and particularly in this area. The Comptroller and Auditor General referred to the fact that our costs in 1993 are less than they were in 1984 and as a proportion of non-pay spending we spent 5.2 per cent in 1984 and 2.96 per cent in 1993.

With regard to the Chairman’s question, we have already carried out a number of things and we are planning to do many more. We have had consultations with every Board and received a written response from each of them. We have also received a collective response from the technical services officers of all Boards, who are the key people in this area. As recommended by your report and to some extent on our own initiative, we will proceed with the establishment of a technical services officers’ forum. We have to agree the detailed terms of reference. We envisage the forum having a wider remit than just energy. There is a number of other for a in the health services for finance officers, personnel officers and so forth and we find them very useful. We welcome this opportunity and, while the main concentration initially will be on energy, we will address a number of other areas.

We are organising a workshop on the report which will involve the Health Boards, the major voluntary hospitals and other interested parties. The purpose of the workshop is to collectively examine the report and to consider what action will be taken on it. The C&AG also referred to small and medium opportunities that exist for saving money over a period of a year and over by making investments. We have already had some discussion with the Department of Finance about the possibilities in that area. The two Departments are in agreement that we will try as best we can to avail of opportunities to do this.

This would not be the first time we have done this. In recent years, with the agreement of the Department of Finance, we have invested in combined heat and power systems and other areas. In addition, there will be an opportunity in the context of notifying Boards and hospitals of their expenditure limits for 1996 to draw attention to the report - particularly to the opportunities that exist - and to ask the Boards and hospitals to integrate their objectives in this respect into the service plan for 1996 and beyond.

The report comments on the fact that we have not developed a detailed energy strategy. That is technically correct. However, since 1984 we have been in regular dialogue in various ways with the Health Boards’ technical services officers in this area. The strategy is to minimise energy use and energy costs and to take any practical and achievable steps which do not conflict with the primary aim of the service. We also propose issuing a circular to all health agencies - not just Health Boards - bringing the main issues identified in the report to their attention and restating general guidelines in this area. The circular will include a reference to any issues that are raised by the Committee of Public Accounts at this hearing. We will continue to avail of opportunities with regard to combined heat and power. Those opportunities will mainly be limited to large centres because they are not feasible in smaller areas. We will encourage agencies to seek grants for both combined heat and power and energy audits from the Irish Energy Centre. Finally, we will follow up those units that have been identified in the report, for whatever reason, as performing poorly.

As the C&AG personnel know, we appreciate the technical and logistical difficulty involved in undertaking this report. We hope they got full co-operation from everybody as we tried to facilitate that as much as possible. There are some arguments as to whether relating expenditure to the number of beds or taking a photograph of the situation at a particular time is valid. However, these are technical details.

The hill we have to climb to achieve further savings is probably steeper than the one we have climbed since 1984 in so far as there are fewer opportunities. In one area, electricity, there is a particular problem. The volume of electricity we require in order to support an increasing number of high technology services is growing all the time and, as you are aware, it is extremely difficult to negotiate a national arrangement with the ESB. We would like to do so and have organised ourselves to do as much as possible of our procurement on a national basis but we have a particular problem with some of the national utilities in relation to a willingness to negotiate an overall rate. That might be the case for other organisations as well. However, we secured such an agreement with Bord Gáis which we appreciated very much. If I were to identify an area where it probably will be difficult to show further savings in any great quantity it would be electricity.

Chairman: Thank you for your detailed reply. Were specific targets for overall savings identified when the central purchasing group was formed and, if so, how do the results to date compare with the targets set? Can you provide us with an estimate of savings achieved to date through the introduction of centralised purchasing? What exactly does central procurement cover and can you outline the plans for this area in the future?

Why was there an apparent delay in entering negotiations to centrally negotiate oil prices? What is the current position in this regard? How much in overall annual savings do you estimate can be achieved through this process?

Mr. O’Dwyer: The answer to your first question is no, we have not. However, since 1993 centralised purchasing agreements cover about 64 per cent of our purchases. I cannot at this stage provide you with an estimate of savings but I will be happy to address that and communicate with you.

For a number of years we have been trying hard and with considerable success to get Health Boards and hospitals to co-operate in the value for money area. It is becoming easier now that people see its results and since we have been able to organise procurement arrangements both for voluntary hospitals and the Health Boards. We are awaiting a report from a group composed of internal and external personnel which is looking at materials management. Our intent is to promulgate, in 1996, a policy on materials management for the entire health services. That is part of the group’s wider remit.

I will be glad to come back to you with the estimates we can give you.

Chairman: Why was there a delay in entering negotiations to centrally negotiate oil prices and what is the current position in this regard?

Mr. O’Dwyer: Traditionally arrangements were made by Health Boards and hospitals with local suppliers and distributors of oil. There was a certain reluctance on the part of oil companies to get involved in central negotiations because of their local distribution arrangements and the understandings they have with them. We are making progress in that area. Perhaps it could be said we should have done so earlier, but we are now more practised in how to take part in these negotiations and discussions.

As I said earlier, there is a greater willingness on the part of management in the Health Boards and in the hospitals to make progress now that they have seen the results of central procurement and are not fearful of them. One of the great difficulties of central procurement in the health services - it does not extend to what we are talking about today - is user preference. It has taken us a long time to reassure people that central procurement does not necessarily conflict with user preference, particularly in the high technology areas such as theatres, intensive care, etc. We are making slow but steady progress in overcoming that difficulty. We have committed people at central and local level to work on this area on a full-time basis.

Chairman: Do I take it that you are not yet in a position to negotiate centrally on behalf of the various hospitals as regards oil prices?

Mr. O’Dwyer: We are near to it, but we are not yet there. The report to which I referred as regards materials management will bring us a stage closer. We were not ready to look at that until we had our own house in order in terms of the necessary co-operation and structures. Now that we have done that we can look at it and I hope we will be able to make progress. You will appreciate that it would be foolish to give undertakings which it may not be possible to carry through.

Chairman: Based on present costings, how much in overall annual savings do you estimate will be achieved through this process?

Mr. O’Dwyer: I cannot give you a figure but, as a general rule, the type of savings we are being asked to achieve across the Board is approximately 1 per cent. We would achieve more than that in particular areas. I have given an undertaking to come back to the Committee with estimates of savings, so perhaps we could address that point and give the Committee a range of what we think might be achievable over a period of three years.

Chairman: Perhaps this is an unfair question, but is there a difference at present between the various hospitals as regards oil prices?

Mr. O’Dwyer: I would not like to answer that question. My impression is that because of what we have done in recent years in the area of purchasing, price differentials are tending to narrow. We would probably have the information in time, but we would need to ask for it.

Chairman: Are you satisfied that you will make substantial savings if you purchase on a central basis?

Mr. O’Dwyer: That will depend on how good our negotiators are and what leverage we can exercise. Oil prices have been holding steady or falling, so we will probably be told by the oil suppliers that they are already at death’s door as regards their profits. It is interesting that we took part in serious and sustained negotiations with the gas companies when they wanted a 30 per cent increase in their prices. We came out of that having achieved an overall increase of 6.5 per cent. I am sure you appreciate that this is about negotiation and about being in a position to convince people that we have an alternative and that we are prepared to exercise that alternative.

Chairman: Are you satisfied that you will make substantial savings once you are able to negotiate?

Mr. O’Dwyer: Yes.

Deputy Broughan: One of the conclusions of the report is that energy management varies from good to relatively poor. Is it not the case, therefore, that you and the Health Board managers have been remiss in not attending to this? Many organisations, for example, have an energy officer who is responsible for procurement, monitoring, etc. However, you and the Health Boards management have failed to do this in a number of Health Boards. As you mentioned, the technical services officer has a wide range of engineering duties. Is it possible to extend the same good system of management which exists in one or two Health Boards - the Mid-Western Health Board was mentioned - throughout the system?

Mr. O’Dwyer: On the basis of the consulting engineer’s performance rating of 20 hospitals, 70 per cent were rated as very good, 25 per cent were fair to good and 5 per cent were poor.

Deputy Broughan: Were the poor hospitals located in one Health Board area?

Mr. O’Dwyer: As far as I can remember, they were in two Health Board areas, but I am subject to correction.

Deputy Broughan: What Health Board areas?

Mr. O’Dwyer: I must refer on that point.

Chairman: I ask the Comptroller and Auditor General to provide information on this point.

Mr. Purcell: On page 21 of the report the James Connolly Memorial Hospital in Blanchardstown was rated fair to good; the General Hospital in Cavan was rated fair to good; the Plunkett Home for the Aged in Boyle was rated fair to good; St. Joseph’s Hospital in Ennis was rated fair to good; and the District Hospital in Birr was rated fair to good. It was concluded that St. Vincent’s Hospital in Athy was poor. The others, as the Accounting Officer has said, were rated either good or very good following a detailed energy audit.

Mr. O’Dwyer: It is important to take a message from the report that it is possible to do more, but we must look at the individual situations. For example, I am sure the Deputy is familiar with the old home in Athy. It is an old scattered building which presents considerable difficulties from an energy management point of view. As the report acknowledges, we have a definite set of standards and objectives on what must be achieved as regards energy management for every new building or major refurbishment project. We are constantly urging the Health Boards, not only in this area but in every area, to compare practices and to identify good practice. There are five energy officers in five Health Boards.

The result of this report will be a surge of interest in energy management. It is important to appreciate - the Deputy acknowledged this - that we have a limited number of technical people in these areas who must be deployed over a wide area. A considerable amount was done in this area in the 1980s. We had to deploy people in the past few years to do other things, but the priorities will now be reoriented and we will focus them again on this area.

Deputy Broughan: Would you be able to get an ongoing energy audit of all the institutions when this system is in place?

Mr. O’Dwyer: In many places we would have good up-to-date information on our energy usage and its relative efficiencies and inefficiencies through building management systems, etc. We will be able to get an ongoing energy audit. I referred earlier to the fact that we will encourage agencies to seek grants for energy audits from the Irish Energy Centre. We will, as part of the guidelines, introduce a cyclical arrangement where every place will be audited not less than a certain number of years at a time.

Deputy Broughan: Paragraph 3.27, to which the Comptroller and Auditor General alluded, states that low cost initiatives would generate annual savings of approximately £0.5 million and that further annual savings of £2.2 million for at least ten years could be generated by initiatives, once-off capital outlay of approximately £6 million. I want Mr. O’Dwyer to expand on that. If we are prepared to spend this additional £6 million, what would be the saving? Exactly what would be done for £6 million?

Mr. O’Dwyer: First, we will go for any area where we can save money if at all possible, even if it involves investment. It is not always possible to do it immediately but we would certainly be opportunistic with regard to it.

In recent years two things have happened. First, we have used some of the capital programme for investment in areas like this, particularly in the rationalisation of boilers and so on. Second, we have approved a number of loans where it was clear the revenue savings would repay the loan. We did that with the approval of the Department of Finance. I think we will focus in on this and see how quickly we can do it.

I want to mention that some of the comments which we got back from the Health Boards suggested they would like to have another look at the figures because they felt the extrapolation which was made might not stand up. Subject to that, there are opportunities. I think the people in the Department of Finance are very supportive of us and we expect we would be able to show progress in this area and show it quickly.

Deputy Broughan: Would you be including things like local control devices in, for example, the hospital to which Mr. O’Dwyer referred? Is that the type of investment about which we are talking?

Mr. O’Dwyer: We would see that as more or less standard procedure now wherever it is possible, i.e. computerised systems and so on and, in so far as we can, ones which do not involve any increased outlay on labour. Some of the savings which are projected here involve the purchase of particular types of equipment or whatever. All of that would be very much in line with what we would like to do and we are probably in a better position to do it now than we might have been a few years ago.

Deputy Broughan: Were Health Boards, like, for example, the Eastern Health Board, in a sense ripped off in the procurement area, in relation to gas, oil and LPG, by local distributors, given the huge variations relatively in the price of those oils. For example, there were huge variations between gas oil prices for the Eastern Heath Board and the South Eastern Health Board. Why on earth should that be the case? I accept Mr. O’Dwyer has outlined an argument but, again, it seems there was an element of rip-off in transport costs, for example. It would seem the eastern area should be even cheaper.

Mr. O’Dwyer: The Deputy will appreciate that anywhere there is a middle arrangement, whether it is distribution, wholesaling or whatever, there is potentially clearly a saving if you can deal with the direct originator or supplier of the product. That would apply in a large number of areas. That is probably one of the big issues which is going to face us when the materials management report, to which I referred, is completed. I imagine it will address that area and the whole question of the health system operating corporately to do deals with large utilities will be very much to the fore.

I don’t want to make any judgement. I think we have to deal with the situation as it is at a particular time. Ten years ago, or maybe even five years ago, people weren’t thinking in these terms generally. They are now. I want to give assurance to the Committee that there is a very acute awareness of value for money among people and that we are trying, as a Department, to put the processes, the procedures, the policies and people, where necessary, into place to try to push on with that. I think we were probably the first Department to have a value for money unit. We have kept it in place. We intend to keep it there and we are also encouraging Health Boards collectively to get together and do certain things. They are doing those things.

I wouldn’t want to make any comment on whether or not we could have done better in the past. I suppose we could have in retrospect but I think it is only fair to say we must recognise certain commercial realities. At the end of the day, if somebody wants to distribute their product in a particular way and they are the only game in town, there is not a whole lot we can do with it.

Reference has been made to particular costs, say, in the North Western Health Board. There is a particular problem there by virtue of the geography of the area and, despite repeated attempts by the North Western Health Board in relation to particular fuel products, the fact of the matter is they are back to one supplier, effectively.

One of the areas to which we would be looking in north/south co-operation, and which we have already exploited in relation to technology, is whether there are opportunities there to open up certain markets. That is something of which we would be conscious, particularly in relation to those Boards along the Border.

Deputy Broughan: Did all those procurements of fuel follow the requisite tendering system? In all instances, was that the cheapest rate at which we could procure the product for the particular hospital, home or whatever? This is a very topical matter. We are anxious to see there are no sweetheart deals here.

Mr. O’Dwyer: First, there are very clear guidelines, and there have been for many years, with regard to tendering procedures. As the Deputy knows, our Health Boards have been audited up to recently by the Local Government Audit. They are now audited by the Comptroller and Auditor General and we have an internal audit function in Boards.

In my time in the finance unit, before I became Secretary last year, I was not aware of any instance where people raised questions about the propriety of tenders. Occasionally, we have problems in the more esoteric areas with regard to what I referred to earlier, the question of user choice and what have you. In relation to the general run of things, if there have been difficulties or problems out there, and I am always subject to correction by the Comptroller and Auditor General, I have not become aware of them.

Deputy Byrne: First, I congratulate the Comptroller and Auditor General who has really compiled an incredibly interesting and in-depth report. It is quite complex. He mentioned that not withstanding all that has been done, much more still needs to be done.

We hear a lot about central purchasing and the benefits of it. One of the figures in the report is disturbing and maybe Mr. O’Dwyer can explain it. On fuel oils, for example, I do not think the best co-ordinated purchasing was involved. It was estimated that central procurement arrangement for fuel oils would generate annual savings of £114,000 for example, for the North Western Health Board. If central procurement is as good as it is said to be for fuel oils, why has it not been done? Why have those saving not been made?

I sense a contradiction, though, when we move on in the report and see that the agreement negotiated centrally on natural gas did not necessarily reduce costs for all Boards. How did that come about? The report states that in the South Eastern Health Board area hospitals and homes were able to buy gas more cheaply under their local contracts than under centralised purchasing. How come there is an apparent contradiction there?

Mr. O’Dwyer: I will take the last question first because there is a very simple explanation to it. It has to do with the fact that when we negotiated the central agreement on gas, the South Eastern Health Board was in the early stages of a contract which it had just negotiated. As I said earlier, we dealt with that in a situation where the gas people were looking for a 30-35 per cent increase and the negotiations came out at about 6.5 or 6.6 per cent increase. So there was a situation where for a short period, the particular period which was looked at here, the south-east did not benefit from the arrangement. Once their contract was up and the period was over, it came on line. That was a timing issue.

The Deputy referred to the North Western Health Board and, again, I haven’t total recall of the report, I think there is a particular problem to which I have referred there. Up to now, not only in relation to this particular product but also in relation to other products, the north-west and Donegal, in particular, experience difficulties getting the rates which might apply elsewhere because of the distance and the transport costs. I should say the North Western Health Board generally is among the most energetic and determined Boards when it comes to seeking value for money and improving services. Despite their best efforts, they have not been able, on their own or as part of a wider purchasing arrangement, to do better until now. We will keep at it and certain strategies are being considered which I hope will come to fruition in the next year or so.

Deputy Byrne: I saw in the report that the Eastern Health Board was applauding itself at having made substantial savings. It reported estimated savings of £700,000 per year by eliminating boilerman posts and reducing maintenance charges on solid fuel boiler plant. On the surface it sounds like a good performance since £700,000 is not chicken feed. However, we also see that the voluntary hospitals have more manpower resources than Health Board premises for management and maintenance. It pointed out that five large Health Board hospitals surveyed had one maintenance person for every 25 beds, while four selected voluntary hospitals had a ratio of 1:15. Is that a false saving projected by the Eastern Health Board? Do we have the necessary management and maintenance people inhouse in the Health Boards? Why is the ratio between the voluntary and the Health Board hospitals so different?

Mr. O’Dwyer: I have no reason not to believe the figures given in relation to savings. I am sure you will appreciate that the large savings came when there was an easing of policy as regards the use of solid fuels. We no longer require the same number of people to support boilers, etc. As regards the other point you made, we expect voluntary hospitals, which are more compact and whose buildings are more modern, to show - depending on the indicator you use - a more favourable situation.

You must appreciate that when you look at a Health Board, you are looking at a mixture of services which are of varying ages and, in some instances, as in the case of the East, at buildings which are quite old. If you look at another part of the report you will see that the County Home in Athy came out quite poorly in terms of energy management. The attitude we have taken is that we welcome the report and have no reason to seriously challenge anything contained in it. We see it as a boost to what we are doing. It is something which we have taken up with every Board and with the hospitals. If there is a margin we can get out of it, even if it requires investment in terms of capital or people, we will try to do that. I cannot give the Deputy assurances beyond that.

Deputy Byrne: We all noticed the advertisements by the ESB during energy saving week. Those of us who are energy conscious are aware of the considerable cost involved in switching from ordinary light bulbs to long life ones. We note in modern buildings, such as the Eastern Health Board headquarters in Dr. Steeven’s Hospital, are built with modern bulbs and fittings. Are you assisting the Health Boards in any way or are they funding the switch from the traditional light bulb, which is costly to run and has a shorter life span, to modern fittings? How are they being assisted?

Mr. O’Dwyer: We do not have a specific heading. We expect that that type of expenditure would probably come from the maintenance budget which they would set aside out of their revenue. In addition, for a number of years we have had deferred maintenance programme where we have given money each year to Boards and hospitals because of the backlog of maintenance. I know some of the Boards used some of that money to improve boilers, etc. I cannot say whether it extended to light bulbs.

Obviously, the main opportunity for us as a Department in this area would be when we do specifications in relation to new or upgraded buildings. At a technical level, technical services and energy officers would be very conscious of the opportunities. Given the relatively small amounts of money involved, I would hope Boards would do that as part of good practice.

Deputy Byrne: Given the amount of saving which can still be made as regards energy conservation, which has been pointed out in the report, have you given any consideration to the question of contract energy management?

Mr. O’Dwyer: That suggestion was made in the report. We have not considered that in detail, but it is worth considering. It is something which we should perhaps consider in relation to a couple of pilot areas. Assuming there are people who can supply the appropriate service at a reasonable cost, we would be prepared to look at that in principle. It is an idea from the report which we will follow up.

Deputy Upton: It is somewhat surprising that this type of situation is emerging given that in the 1980s we had an energy crisis. There was considerable concern that we should conserve energy to the maximum degree possible. Yet this report indicates clearly that there is a considerable amount of waste in Health Boards. Will you explain how the concerns of the 1980s seem to have passed the Health Boards by? Were they efficient in the 1980s and have since declined?

Mr. O’Dwyer: It might surprise the Deputy to know that as far back as 1984, a number of Boards won prizes for energy management. If another public service organisation is spending less on energy in 1993 than in 1984, we would be happy to look at what it has been doing. That is what the report shows. While I do not want to be confrontational, the report shows that there has been an energy management policy which has been effective both in relation to procurement and usage, but it also shows what more needs to be done. We have no argument with that.

If we are to get people to make a sharper climb in terms of achieving what needs to be done, we must acknowledge what the have already achieved and encourage them. A lot of the savings shown in this report probably occurred under great pressure in the late 1980s when Health Boards and hospitals, as you will remember, were under considerable difficulties from the point of view of resources. A number of factors contributed to that.

The Boards, in commenting on the report, have all drawn attention to a number of initiatives which all of them took, including boiler decentralisation, better controls, improved insulation, draught proofing, leak elimination, building management systems and good housekeeping programmes as well as better procurement in terms of fuel. We must look at the figures mentioned here, which range from hundreds of thousand to £0.5 million. As the Comptroller and Auditor General said, we spend about £21 million to £22 million on energy. We should look at that in terms of the figures on the table - £0.5 million and £140,000 have been mentioned - and hope to do better.

Part of the contribution which will be made in this area is the extent to which we manage to replace old buildings. Our experience has been that even with modern lighting and heating systems, etc. in modern buildings, we can do a lot in the energy saving area.

Deputy Upton: I am a little puzzled at Mr. O’Dwyer’s response. I am looking at the ratings after a detailed examination. I do not see any indication of what the range is but a number of them are “fair to good”, whatever that means, some are “good” and the occasional one is “very good”. Is there a possibility for “excellent”? Does that category exist? If not, why not? I would have thought the objective would be the pursuit of excellence.

The second point which I want to raise with Mr. O’Dwyer relates to the comparisons between the private sector and public sector hospitals. They do not compare well. Can Mr. O’Dwyer give the Committee an explanation as to why that is so? Can he give us such an explanation in the context of what he has said? This is what puzzles me.

Mr. O’Dwyer: In relation to the Deputy’s first point, the comments and analysis in the report reflect what was done (a) by the Comptroller and Auditor General’s staff and (b) by the consulting engineers which were brought in. We didn’t in any way suggest what the particular level of ratings should be or whatever. I think it is only fair to say that 70 per cent of those which were looked at fell in the good to very good bracket. Then there are others which are below that.

If we wanted to go into this area, we could start an argument about the criteria. We don’t particularly want to do that but, for example, if this were being looked at by a group of engineers, they might present a different picture in different areas depending on what particular criteria you are using. If you are looking at something by reference to bed numbers, for example, you could also look at the criteria in terms of the total space or whatever it happens to be. The point I want to make, Deputy, is that we don’t particularly want to get into that argument. We have to deal with this now on a case by case basis. We see there are opportunities and we will follow them through.

In relation to the voluntary hospitals, the first point I’d make is that by and large the voluntary hospitals, which were brought into the report for the purpose of comparison, generally have much newer buildings. Since 1976, practically all the hospitals in Dublin have been replaced and they are the major voluntary hospitals. Even about half of the Mater Misericordiae Hospital consists of new buildings and the other parts of it have been revamped. There is St. James’s Hospital and Beaumont Hospital. The older hospitals which we are still using are the Adelaide Hospital and the Meath Hospital. Therefore, the first point which I would make is that the actual buildings and the energy systems within them would be more modern and efficient than the broad mass of buildings which would be under the Eastern Health Board or, indeed, under the other Boards.

Second, the particular indicator which you are using if, for example, you are looking at beds, would probably be more applicable and more valid in relation to voluntary hospitals than to a range of buildings on the Health Board side.

Having said that, we would start from the premise that, as the report says, there is, perhaps, better energy management in the voluntary hospitals. If there is, let us see what is making the difference apart from the buildings and let us try to apply that. If, on the other hand, you were to take a new hospital, like Cavan General Hospital or Mullingar Hospital, as it is now emerging, and you were to compare them with a voluntary hospital, you might get a somewhat different outcome.

Deputy Upton: Is it was the culture of the public sector being something of a soft touch in these matters?

Mr. O’Dwyer: Well, of course, the voluntary hospitals are in the public sector. They are not private hospitals. They are funded by the Department, the staff in them enjoy exactly the same conditions as Health Board people and so on.

Deputy Upton: There are exclusively private hospitals in this country. Have comparisons been made with them?

Mr. O’Dwyer: It is my understanding that private hospitals are not included.

Deputy Upton: Why?

Mr. Purcell: There are a few points there and may be I will take them sequentially. As the Accounting Officer quite rightly says, he is not responsible for these ratings; I am. I suppose we tend to be conservative in the way we express things and I think you could take “very good” as being top of the range. We did not have an “excellent” category because, perhaps, we are masters of understatement.

While not disagreeing in any real sense with what the Accounting Officer says, for the purpose of rating performance we got Forbairt to validate the criteria for us and we paid them for doing so. We did not send a group of consulting engineers out to do the work according to their own standards. We had the criteria validated by Forbairt.

On the fabric of hospitals, old buildings and so on, we mentioned Cavan General Hospital as an example - and it was mentioned earlier - which is a large institution of relatively new construction but we felt it was being operated with an inappropriate control system. We felt a building management system should be introduced there as a priority. That is just a small point.

On the last point relating to the private hospitals, we didn’t ask to go into the private hospitals because we would have no right to do so. In the case of the voluntary hospitals, even though we have inspection rights and not value for money rights they were most co-operative. I can certainly agree with what the Accounting Officer said about the level of co-operation which we got at Health Board and voluntary hospital levels. Our remit does not run to private hospitals.

Deputy Upton: I do not see any international comparisons. Can the Comptroller and Auditor General tell the Committee why they do not appear?

Mr. Purcell: We used similar types of criteria to those which have been used in the health service in Britain. We felt they were appropriate so, to that extent, there is a comparison.

Deputy Upton: How? We do not have data in relation to how Britain is performing relative to Irish hospitals or, for that matter, how the continental or American hospitals are performing. I would have thought that would be of use and of interest.

Mr. Purcell: It certainly would be of interest, Deputy, but this was a major job. As you can see, the task involved surveys of hundreds of hospitals and Health Boards. One must call a limit on it somewhere in terms of resources. It was a major gobbler of our staff resources in this particularly area. When you are making international comparisons, there may be different set-ups and different administrations. The way the whole system operates might well be different. To get a level playing field in terms of comparison could be very difficult and would have involved a lot of work which might not necessarily have led us to identify opportunities for savings which we have identified in this report.

I take the Deputy’s point. It is valid. It is provided for in legislation that we may carry out comparisons, including international comparisons, but maybe that is for another day in another, perhaps broader, context of public sector energy management generally.

Deputy Upton: There is a reference in the report to a considerable degree of disinterest in these matters at Health Board level. What is the cause of that? I cannot put my finger on it but it is stated in the report. It indicates that these matters receive very little attention at Board level in the Health Boards. Will that change? Is there anything that the Boards of Health Boards can do about these matters?

Mr. O’Dwyer: It is essentially contestable - and the Deputy has been around - as to whether you should really ask Boards to look after this or whether it is a management function. In my view, it is primarily a management function. I think the obligation is to keep Boards informed and get support and encouragement. It is interesting that in the responses by Health Boards they got a bit “tired and emotional” at that comment. They said that of course they interest the Boards in these things and that they do x, y and z. So I do not particularly want to get into that.

The main focus would be that we have tried to involve Boards and I think we have been reasonably successful in becoming aware of what trying to get value for money is all about. This would be part of it.

It is primarily the responsibility of the Chief Executive Officer and his management team to go after this as part of their management function. If there are problems, report them to the Board and if there are successes, presumably they will do that too. It might be somewhat unfair to say there would be a level of disinterest in it. It may just be that it doesn’t feature very much as a specific and particular item on Boards’ agendas.

Deputy Upton: I thought Mr. O’Dwyer was going to brighten our day by giving an account of the Boards being tired and emotional.

Deputy B. O’Keeffe: If one produces waste that is a waste of money. Has Mr. O’Dwyer seriously examined the possibility of minimising the amount of waste generated? Has he had consultations with groups involved in the area to see how it could be done?

Mr. O’Dwyer: The question of waste management policy may well have been mentioned here on my second last appearance, if not the last time. We produced a policy statement in 1993 or 1994 and it not only exhorts people to reduce but gives examples of the ratio of total waste produced in hospitals which is avoidable and waste which can be disposed of on a household basis or its equivalent. As to managing waste we have laid huge stress on beginning at ward level and the rigid adherence to division of waste into different categories is at the heart of this. In the medium and long term that aspect of policy will pay more dividends than many other things we will be able to do.

It is interesting that as the price of disposal has risen the amount of waste people produce has reduced. I agree that should be pushed because it has led to the question of what we will do to those substances which must be incinerated. We are working on a planned basis through a policy which seeks first, to reduce waste; second, to ensure it is categorised; and third, to ensure it is disposed in an environmentally friendly way. To the extent that it is not possible to do so and given that there is no agreement on a national toxic waste disposal site we have to address the issue. That is the up to date position as far as I recall.

Deputy B. O’Keeffe: I raise this matter because yesterday the Joint Committee on Sustainable Development received a submission from the Clean Technology Unit of the Cork RTC. The delegation members were specific about waste minimisation and gave examples of monitoring and expertise in various areas. They have now begun pilot projects with Local Authorities. One is in Clonakilty and even in its early stages major differences have been demonstrated in the reduction of waste. Is it worthwhile for the Department of Health to consider a pilot scheme? It is fine to have grandiose ideas and send out bulletins encouraging certain developments but if a pilot scheme was put in place in a major hospital which showed we could minimise the amount of waste generated, the facts and figures would be available. How open is the Department to such an option to show we can achieve the necessary waste minimisation and in doing so reduce the costs?

Deputy Byrne: Has this an energy cost role?

Deputy B. O’Keeffe: Of course it has.

Deputy Byrne: Is it being advocated that we incinerate the waste in order to retain the energy from it?

Mr. O’Dwyer: I am trying to answer the question but I am not making a judgment as to whether it is within or without. I think we would consider that idea but people on Health Boards and in hospitals are already aware of one or two examples where a considerable reduction in waste has been achieved by applying these procedures. We could take it further and give a high profile to one or two pilot areas. The Waste Bill requires a reduction and minimisation of waste and puts a particular obligation on public bodies to achieve that.

Deputy B. O’Keeffe: I understand the Waste Bill mostly uses “may” rather than “shall”.

Mr. O’Dwyer: My feeling is that the problem of waste has become so acute, expensive and difficult that only an exceptional person is not paying attention to it at this point. To return to Deputy Byrne’s point, there are energy considerations in that if one produces a certain volume of waste to transport or get rid of it otherwise, some energy is required but I do not know what proportion of the total energy bill is involved.

Deputy B. O’Keeffe: Given environmental considerations it is generally accepted that all our incinerators will have to close. They are now subject to the EPA as well as other regulatory authorities. The incinerator in Cork University Hospital had to be closed; it cost £35,000 per year to run. The system of microwaving now introduced costs £600,000. Can Mr. O’Dwyer give an idea of what cost will be involved in closing down these incineration units? What is proposed in their place? Will we centralise the facilities? What is the general view in the Department?

Mr. O’Dwyer: An estimate we made some years ago before this issue became public made us aware of two factors. First, the level of specification for incineration being agreed at the EU was of such a high order that even the most advanced countries were finding it difficult and, more particularly, extremely expensive to meet the specification. We looked at the position in Germany and elsewhere. It was because of this and because the matter became one of public concern that we began a number of years ago to investigate the alternatives. Our objective is to bring the alternatives to a state of operational efficiency so they can deal with the vast bulk of waste which must be processed. No matter how much we do, a small percentage — perhaps as low as 1 per cent — of the total waste will be cytoxic and it can only be disposed of by incineration.

At present we have to export a considerable amount of waste. That in itself is expensive but the requirements for the disposal of waste for environmental and other reasons mean it is significantly more expensive than under the old methods. In an attempt to reduce the increased bill as much as possible, we have tried to find alternative technologies and in an attempt to bring that increased expenditure down as low as possible that we have been trying to find alternative technologies and reduce the overall amount of waste. We are trying to avoid the extraordinary expense involved in trying to produce an incinerator which would be up to standard. There is no guarantee that it would actually produce the end result in accordance with the recommendations.

Deputy B. O’Keeffe: My question refers to metering of laundries, kitchens and operating theatres. The report suggests that separate meters should be installed for each of them to establish their efficiency. Does Mr. O’Dwyer propose to do that?

Mr. O’Dwyer: Yes, we have followed through on that.

Deputy O’Malley: This report seems to be very useful and valuable. It value will be very diluted unless the Department ensures that the suggestions contained in it are implemented. This will have to be done in a very single-minded manner.

The most striking point made in this report is in relation to the extraordinarily high cost of electricity to hospitals. Only 12 per cent of the Department of Health’s institution-related energy is electrical but 42 per cent total cost is paid on electricity. This indicates that the prices that hospitals pay for electricity are appallingly high. That seems to be borne out by the fact that even large hospitals are paying 11.9 pence per unit which is completely unjustifiable. Does Mr. O’Dwyer think that some arrangement might be negotiated with the ESB? He stated at the outset that he had tried without success. However, given that the charges are scandalously high and represent the largest feature of hospitals energy costs - even though that is only a fraction of the energy consumed - could Mr. O’Dwyer try again? In this regard, it should be borne in mind that figure 2.3 on page 8 shows that the average cost per kilowatt hour for electricity is seven times greater than heavy fuel oil.

Mr. O’Dwyer: I am sure the Deputy gathered, both by what I said and the way I said it, that I was not very optimistic. That does not mean that we are not prepared to try. We will certainly continue to try. We are under great pressure, from the Chief Executive Officers of the Health Boards in particular, to try. They see that this can only be dealt with at national level. They cannot take the issue further themselves. I accept the Deputy’s analysis that this particular issue is one on which the Department has a very important role to play.

We will probably put further shape on our total procurement arrangements during 1996. We will have a more integrated approach than the one we have at present. In that context, where we can speak on behalf of the whole system to bodies like the ESB, perhaps some progress can be made. Other than referring us to the opportunities. which exist in availing of the various tariffs, we are not aware of a willingness on the part of the ESB to enter into a service-wide arrangement with us. I think the report, which highlights the facts on this issue, gives us reason, opportunity and makes it obligatory on us to try. I do not want to make any comment with regard to what the outcome might be. It is something we shall have to pursue at the very highest level with the ESB.

I could also say that apart from that we are aware that we have to insist on a programme which would include the replacement of light fittings, automatic switching by presence detectors - where not already installed - the speed control of motors of variable frequency and, wherever possible, realising the opportunities for combined heat and power. That has been achieved in hospitals such as Crumlin, Beaumont and Cork Regional. We foresee further opportunities for that. All of those together will only give us a certain amount. In a situation where we cannot reduce the usage, in fact pressure is on us to use more by virtue of the increasing use of equipment which uses large amounts of electricity, the critical issue is the price at which we will be able to buy.

Deputy O’Malley: It is the critical issue and everything possible should be done to have the price reduced to a reasonable level. For example, other forms of energy might be substituted for electricity. Obviously this cannot be done in the case of lighting or operating theatres. In figure 2.4, the Comptroller and Auditor General suggests substituting the use of gas for electricity to power kitchen equipment. Would Mr. O’Dwyer give a direction to all hospitals in the country that no one in a hospital should be permitted to cook using electricity, which is infinitely more expensive and less efficient than gas? Could a direction be given that no general or laundry hot water systems be heated by electricity and, where possible, steam be substituted? The Comptroller and Auditor General’s report mentions autoclaves which do not use much power. I am sure there are larger items which might be considered.

Mr. O’Dwyer: I stated earlier that one of the things that will happen in the near future is that we are going to engage in a forum with the Boards of the various hospitals about this report. This area will feature very highly. We could certainly set it as an agreed policy objective that we would do this. However, there are two factors involved. First, a certain amount of funds will have to be made available for the necessary switch-over. The question will arise as to how this will be achieved. Second, I can imagine situations where cooking by electricity might be very dear to certain people’s hearts and we would have to use a certain amount of persuasion. We must set out to achieve it. However, I do not know if the best way to do it is to issue a directive. A certain amount of softening up needs to be carried out. We should make it clear that that would be the objective. I have to say, in fairness, that much of this kind of switching over has been carried out. Obviously we will be pushing for more of it to be done.

Deputy O’Malley: With regard to figure 1.2 on page 2. Could Mr. O’Dwyer explain how it was possible for a number of the Boards, the Eastern, Southern and Midwestern in particular, to effect a significant decrease in expenditure on energy between 1984 and 1993? At the same time the North-Eastern and North-Western Health Boards experienced an increase.

Mr. O’Dwyer: There are two factors to this. First, the availability of natural gas is a major factor. The second factor would be the extent to which a particular Board was, or was not, into solid fuel and switched out of solid fuel into other alternatives. However, the major factor is natural gas which made a huge difference where it became available.

Chairman: I ask the Comptroller and Auditor General to make a comment on this issue.

Mr. Purcell: As was rightly identified by Deputy O’Malley from the report, electricity is the big consumer of energy resources. It is costly per kilowatt hour because of the conversion efficiency and the transmission losses. There is scope, taking into account what the Accounting Officer has said about the reticence of the ESB to enter into a national agreement, for saving and ensuring that each hospital is on the appropriate tariff. In the report we noted 33 hospitals and homes where they had electricity costs within a certain range. We felt that there may be scope for adjustment of the tariff structure in those cases.

With regard to autoclaves we understand these are heavy users of electricity in a hospital because clothing and instruments have to be sterilised. They are heavy consumers and real gains can be made in that small area.

Chairman: This value for money examination demonstrates that worthwhile savings on energy can be achieved. The Department of Health has a role in this. Centralised purchasing of fuel is a step forward but the Department must also encourage a better and more economical use of energy in hospitals. It could do this by setting standards for energy use, issuing guidelines on energy saving possibilities and examining how funding for initiatives which will save money can be best provided. Health Boards can help by preparing energy management plans with clear and measurable targets. The Committee notes that some savings can be achieved with minimal investment and that these measures should be pursued immediately.

The Committee commends the report to those responsible for the management of other public sector buildings. Many of its recommendations can be applied across the public service and this Committee will review the extent of progress in this regard in the future. I congratulate the Comptroller and Auditor General, Mr. Purcell, and his staff on this excellent report on a value for money examination on energy management within the health service.

Our next meeting is next Tuesday at 11 a.m.

The witness withdrew.

THE COMMITTEE ADJOURNED.